When you set up a company, there are several critical factors you must take into account. You may have heard of the employer identification number. You may have heard of the tax identification number. You may be confused about how these numbers differ or wonder why the EIN is so necessary.
However, don’t panic. If you landed on this article after searching for the critical factors for building a small enterprise or want to learn more about the EIN, check this article’s information for the crucial details.
What Is Meant By a Company?
When we talk about “a company,” we refer to a voluntary association of individuals working with each other to operate a business for profit. The business may be industrial or commercial and can be organized or arranged differently, depending on its jurisdiction’s corporate law. The company is typically recognized legally and has a common seal.
What Is an Essential Factor for the Construction of Small Enterprises?
One important factor in the construction of small enterprises is the EIN. If your business has employees, you must have an EIN. However, even when your partnership, trust, or corporation does not have employees, you will also need this number. Continue reading for more information on the EIN.
What Is the EIN?
Your EIN is a number with nine digits exclusively linked to your business. The IRS (Internal Revenue Service) will issue an EIN to your business and use it to identify your business for tax reasons.
Is the EIN the same as the FEIN?
The short answer is yes; the EIN and the FEIN numbers are the same. These terms both refer to the nine-digit number US-based companies receive from the IRS. EIN means “employer identification number,” and FEIN means “federal employer identification number.”
Why Is an EIN Necessary For Your Business?
Your EIN is necessary for your business as it helps you mitigate tax penalties, avoid identity theft, and boost your freelancer credibility. But there are more advantages to having an EIN for your business. With an EIN, you can:
- Get fast approval for a business loan application
- Establish a credit history as a business
- Hire employees for your business more easily
Some business types require the EIN, and others do not. Check the sections below to learn more.
What Are the Main Company Structures for Small Enterprises?
The main company structures for small enterprises include sole proprietorships, LLCs (limited liability companies), and corporations.
What is a sole proprietorship?
A sole proprietorship is a business that one person owns. A sole proprietor earns and retains all the money they make. They must also file all personal taxes on a personal tax return and don’t get the advantages of limited liability.
What is an LLC?
An LLC is a business in which the owner gets the advantage of limited liability. Their business can work similarly to a partnership – a structure in which the individuals in the company are not personally responsible for the company’s debts.
What is an S corporation?
An S corporation offers limited liability for all debts the company has. This business structure and type of company also means that if the corporation has less than 100 shareholders, they will be taxed as a partnership.
Does an LLC Need an EIN?
Say your LLC has more than two owners. In that case, you will need an EIN. It doesn’t matter if you choose to register as an S corporation for tax purposes or are considering other options; you still require the EIN.
In which case does an LLC not require an EIN?
If your LLC is a single-member business and has no employees, you will not need to get an EIN from the IRS.
Does a Sole Proprietor Need an EIN?
As a sole proprietor, you don’t need an EIN (but there are some advantages to having one). You can use an SSN or tax identification number instead of an EIN. The EIN helps prevent delays in payment from customers who ask for the EIN.
Is there a difference between a tax identification number and an EIN?
There is a difference between the tax identification number and the EIN. You can technically use both for tax purposes, but note that an EIN cannot replace a tax identification number. In other words, using your EIN instead of a tax ID is not possible.
You may think of it this way: The tax identification number features social security numbers and encompasses your EIN, while an EIN isn’t substitutable with a tax identification number.
Do You Need an EIN as a Corporation?
Yes, as an incorporated company, an EIN is required. It doesn’t matter if your corporation is an S or a C corporation; you will still require an EIN.
Why Else Might You Need an EIN?
There are a couple of other reasons you might need an EIN. If you want to open a bank account for business, file your tax returns, or make an application for a license, an EIN will facilitate all of these processes.
What Is a Company, And Why is the EIN Vital? Crucial Points to Remember
As you set up your company, remember that the EIN is an important number with nine digits you can use to open business bank accounts and effortlessly apply for business loans. With an EIN, you can easily hire new employees, so it’s worth looking into this. Always begin by considering the company structure you want to establish, then get the information you need on the EIN to establish your company without any problems.